Remainder method for land based on the principle of residual land productivity and is used, as a rule, for the analysis of NEI land plot.
The method can be used to assess the market value of a built-up land plot. This requires that the area being assessed is used in the most efficient way. The essence of the residual technique for land is to capitalize the income associated with the land, while the value of the property built on it is known.
The residual method for land can only be used if there is information about lease transactions for buildings and structures on built-up land plots comparable to the assessed one. In the absence of such information, it is possible to use data on business income. At the same time, the value of assets other than real estate (in particular, intangible and movable assets) must be deducted from the valuation result obtained on the basis of data on business income.
In general, for the correct application of the method, three conditions must be met:
- 1) the cost of the improvements is known or can be calculated with a sufficiently high accuracy;
- 2) the CHOD that generates or can generate property is known or can be calculated;
- 3) there is reliable market information on the values of capitalization ratios for land and improvements.
In accordance with this method, the market value of a land plot is estimated using the formula
where V L- market value of the land plot;
1 - CHOD generated by real estate in general;
Vg is the market value of the improvements;
R l - coefficient of capitalization of income from land;
R B- coefficient of capitalization of income from improvements.
Scope of the method:
- ? assessment of the built-up area;
- ? assessment of a free site for the proposed construction (including in the analysis of NEI);
- ? real estate objects to be leased ("profitable" objects) with known requirements for the yield of the object and buildings.
Market priceV B improvements when valuing land using the residual method, it is equal to the difference between the replacement cost of improvements, which is the sum of the cost of new construction and entrepreneurial effort (entrepreneur's profit), and the available cumulative depreciation.
Entrepreneurial Effort Costs being part of the replacement cost, in turn, consist of imputed costs, associated with payment for materials and labor, and an additional premium for the time and risk associated with construction. Opportunity cost can be calculated as the lost profit from an investment at a risk-free interest rate. And the additional risk premium is a certain percentage of the total construction costs.
Below is a comparison of analogs (Table 7.2).
Table 7.3 shows the definition of the cost of improvements.
If we designate the amount of investment in a project in t-th period in E t, then the totality of the costs of entrepreneurial efforts, or, in other words, entrepreneur's profit can be represented as follows:
where G- the number of investment periods,
Ag - additional premium for investment risk (in percent);
Y - i + Ai - interest rate subject to additional risk.
In general, the use of the method assumes the following sequence of actions:
- 1) calculation of the replacement cost of existing or projected improvements in the area being assessed, followed by taking into account the total depreciation - obtaining their market value;
- 2) calculation of CHOD from the real estate object;
- 3) calculation of the share of NPV attributable to buildings as the product of their market value by the capitalization ratio of income from improvements;
Comparative table of analogues
Table 7.2
|
Specifications |
Assessment object | ||||||
|
Location |
|||||||
|
State |
Good, no repairs required |
Satisfactory, is necessary cosmetic |
Good, no renovation required |
Good, no repairs required |
Satisfactory, is necessary cosmetic |
Good, no renovation required |
Good, no repairs required |
|
Total area of improvements, m 2 |
|||||||
|
Total area of the land plot, m 2 |
|||||||
|
Offer price, |
|||||||
|
Discount in the price of the transaction,% |
|||||||
|
Transaction price, USD |
|||||||
Determining the cost of improvements
Table 7.3
|
Name |
BC 1 m 3 69 |
current / 91 |
(05 x 06 x 07 x x 0803 x 04 x x 09), rub. |
PC, rub. (10x (01 - |
||||||||||
- * Basis: collections of enlarged indicators of replacement cost (hereinafter - UPVS).
- ** Basis: technical passports of the BTI.
- *** Ground: Resolution of the USSR State Construction Committee of May 11, 1983 No. 94.
- 4 * Basis: letter from the State Construction Committee of the USSR dated September 6, 1990 No. 14-D.
- 5 * Basis: Bulletin of the Regional Center for Pricing in Construction (hereinafter - RCCS).
Notes.ВС j M 3 59 - replacement cost per 1 m3 1969;
V - the cost of new construction;
I & 4/69 - in Lex of the transition from the estimated prices of 1969 to the estimated prices of 1984;
I tsk 91 - current index of 1991;
Счдс - coefficient taking into account value added tax;
H ha - coefficient taking into account the rate of return of an entrepreneur conducting a construction business;
ВС - replacement cost;
DV is the actual age;
ES - term of economic service;
PC, USD - market value, USD at the rate Of the Central Bank Russian Federation(hereinafter referred to as the Bank of Russia): I will appreciate it as of the date! RUB 25 for 1 dollar;
PC - market value, rub.
- 4) calculation of the share of NPV attributable to the land plot as the difference between NPV and its share attributable to buildings;
- 5) calculating the value of a land plot by dividing the share of the private household income attributable to the land plot by the capitalization ratio of income from the land.
Evaluation of CHOD is carried out by drawing up an income statement for the lease of buildings and premises.
The main articles of the income statement are:
- ? potential gross income (hereinafter - LDPE);
- ? actual gross income (hereinafter - DVD);
- ? operating costs (hereinafter - OR), consisting of operating costs, reserve for replacement and management costs;
- ? CHOD (net operating income).
Potential gross income is the one that can be obtained from renting out real estate with 100% occupancy by tenants and no losses from non-payment for rent. When assessing the market value of a land plot, rental rates for its improvements (premises) should be calculated solely on the basis of market rental rates. For premises that are empty and used by the lessor for their own needs, as well as those that are rented out for personal reasons for understated rental rates market rental rates should also be used. Potential income should also include other income derived from the operation of inseparable real estate improvements, but not included in the rent.
Actual gross income is equal to the difference between LDPE and losses for downtime of premises, as well as losses from non-payment for rent. Loss for downtime is calculated as a percentage of potential income, while losses from non-payment are often calculated as a percentage of the difference between potential income and loss from downtime, as well as market data for similar properties.
There are two types of operating (maintenance) costs:
- 1) constant - independent of the level of occupancy of the object;
- 2) variables - depending on occupancy.
Operating costs are determined based on market lease terms.
Substitution reserve. These costs are calculated based on total cost replacement of elements of land improvement (buildings) with short term economic life excluding wear and tear. The calculation is made by direct calculation: by dividing the total cost of replacing the elements of improvements by the period of their economic life. In the process of performing these calculations, it is advisable to take into account the possibility of a percentage increase by bank accounts Money required to replace items with a short life. It is also necessary to take into account the possible inflationary rise in the cost of such a replacement.
Management costs are included in the PR regardless of whether the property is managed by the owner or the contract manager. The amount of management costs is determined either in monetary terms or as a percentage of the DIA, depending on the type of real estate.
Net operating income is the difference between DVD and OR. In this case, only those ORs that are borne by the lessor are deducted from the DVD.
Let's consider examples of market value assessment land plots by the remainder method for land.
Example 7.20. The replacement cost of the projected improvements is CU 537,895; The NPR from the property is CU 98 679; discount rate - 16.83%; compensation fund factor - 0.086%. Solution
Example 7.21. The subject of assessment is a land plot owned by Delta LLC. The assessment is necessary to determine the amount of the contribution to authorized capital when transferring ownership of a land plot to a newly formed business entity. Determine the market value of the land plot using the land balance method.
The characteristics of the land plot and related improvements are presented in table. 1.
Characteristics of the land plot and related improvements
Table 1
|
Land information |
|
|
Total area, m 2 |
|
|
Special purpose |
Exploitation of the existing administrative building |
|
Site relief |
|
|
Land improvements |
Five-story capital building |
|
Information about improvements |
|
|
Local features of the location |
|
|
Distance from the city center |
Located in the center of the city |
|
Total area, m 2 |
|
|
Improvement structure, m 2 |
First floor with an area of 490.2. Second floor with an area of 420.2. Third floor with an area of 480.7. The fourth floor area is 420.1. Fifth floor with an area of 580.6 |
|
Appointment |
Administrative |
|
Sanitary, electrical devices |
|
|
Heating |
|
|
Water pipes |
|
|
Sewerage |
|
|
Hot water supply |
|
|
Electricity |
|
|
Gas stoves |
|
|
State |
Excellent: the premises and finishing are in excellent condition, after renovation, finishing is made with imported materials. The object is focused on a wealthy client |
|
Legal status |
Ownership |
|
Date of receipt of information |
|
The state of the land market as of the date of the 7th assessment: the market for the sale and purchase of similar land plots is in the stage of formation.
The state of the land lease market as of the valuation date: the main lessor of land plots is the municipality represented by the Committee for Land Resources. Bid rent is set administratively on the basis of the base rate and correction coefficients for it, differentiated by location.
The state of the market for non-residential buildings at the date of assessment: the market for the sale and purchase of non-residential buildings is passive, transactions are insignificant, information on prices is closed.
The state of the rental market for non-residential buildings at the date of assessment: rental market non-residential premises active due to the fact that the main users of non-residential buildings are not able to purchase them in ownership due to the limited financial resources and renting buildings does not require large one-time costs.
Solution
- 1. Evaluation of the object of assessment is carried out under the following conditions:
- ? lack of a market for the sale and purchase of similar land plots;
- ? lack of a market level of rent for similar land plots;
- ? passive state of the market for the sale and purchase of non-residential buildings;
- ? the presence of a rental market for non-residential buildings similar to the building on the assessed land plot.
- 2. To assess the market value of the land plot is used remainder method for land. To assess a land plot using this method, it is necessary to determine:
- 1) the value of NPR from improvements of the land plot;
- 2) the value of the cost of improvements to the land plot;
- 3) the value of the capitalization ratio for improvements;
- 4) the value of the NPR related to the land plot;
- 5) the value of the capitalization ratio for the income generated by the land plot (or the discount rate for the income generated by the land);
- 6) the total cost of the land plot.
Let's consider these stages in sequence.
1. Determination of the NPR value (Table 2).
table 2
Calculation of CHOD
- * The basis is the technical passport of the BTI.
- ** When determining the rental rate, an analysis was made of the market level of rental rates for real estate objects similar to the one being assessed.
- *** Based on the analysis of data on similar properties, it is common practice to fully utilize space. Nevertheless, we have included 10% of losses that may arise when changing tenants and receiving less rent.
- 4 * Typical RR in this segment of the real estate market is in the range from 10 to 30% of the DVD and includes: rent) "for land, property tax, land tax, and other conditionally fixed costs.
As a result, the following rental rates were identified (Table 3).
Characteristics of objects and rental rates
Table 3
|
Name |
a brief description of |
rental USD / m2 / g. |
|
|
Detached building, area 2,500 m 2, satisfactory condition, requires minor cosmetic repairs. Operation of the facility in its current state is possible, however, for reliable income generation, it is necessary to restore the finishing |
|||
|
Administrative building |
Detached building, area 2,000 m 2, good condition, low wear and tear, inexpensive, but good finishing. The object is ready for operation without significant capital investments, since it is focused on the average tenant |
||
|
Detached building, area 2300 m 2, excellent condition, after renovation, finishing made with imported materials. The object is focused on a wealthy client |
|||
|
Detached building, area 2,400 m 2, excellent condition, after renovation, finishing made with imported materials. The object is focused on a wealthy client |
|||
|
Administrative building |
Detached building, area 2 600 m 2, satisfactory condition, requires minor cosmetic repairs. Operation of the facility in its current state is possible, however, for reliable income generation, it is necessary to restore the finishing |
||
|
Administrative building |
Detached building, area 2,950 m 2, good condition, low wear and tear, inexpensive, but good finishing. The object is ready for operation without significant capital investments, since it is focused on the average tenant |
||
|
The total value of the rental rate of the appraised object |
|||
The total rental rate of the appraised property is based on comparative analysis pricing factors of analogue objects and the evaluated object by making appropriate adjustments.
2. Determining the value of the improvements. The cost of improvements is determined using the cost approach as aircraft or replacement cost minus accumulated depreciation and all types of obsolescence. The replacement cost or replacement cost is defined as the sum of the cost of new construction and the entrepreneur's profit.
- See the textbook in more detail: Kasyanenko T.G., Makhovikova GA. and other Real estate appraisal. M .: KNORUS, 2010.
Remainder method for land is based on the principle of residual land productivity and is used, as a rule, to analyze the most efficient use of a land plot.
The method can be used to assess the market value of a built-up land plot. This requires that the area being assessed is used in the most efficient way. The essence of the residual technique for land is to capitalize the income associated with the land, while the value of the property built on it is known.
The residual method for land can only be used if there is information about lease transactions for buildings and structures on built-up, comparable to the estimated land plots. In the absence of such information, it is possible to use data on business income. In this case, from the result of the assessment, obtained on the basis of data on business income, it is necessary to correctly deduct the value of assets that are not related to real estate.
Scope of the method:
- assessment of the built-up area;
- assessment of a free site for the proposed construction (including in the analysis of NEI);
For real estate objects subject to lease ("profitable" objects) with known requirements for the yield of the object and buildings.
The remainder technique for land is a cost approach technique, but also uses income capitalization. Key assumptions and assumptions:
- land retains its value, income from land is assumed to be constant;
- buildings and structures have a specific finite economic life;
- the net operating income that generates or can generate the property is known or can be calculated;
- there is reliable market information on the values of capitalization ratios for land and improvements;
- recapitalization of the land plot occurs as a result of reversal;
- the recapitalization of buildings is expected to famous models(Ring, Inwood, Hoskold);
- the cost of the improvements is known or can be calculated with sufficient accuracy.
In accordance with this method, the market value of a land plot is estimated using the formula
Market value VB improvements in the valuation of land using the residual method is equal to the replacement cost of improvements, which is the sum of the cost of new construction and entrepreneurial effort (profit of the entrepreneur). The costs of entrepreneurial efforts, being part of the replacement cost, in turn, consist of the opportunity costs associated with the payment of materials and labor, and an additional premium for the time and risk associated with construction. Opportunity cost can be calculated as the lost profit on the investment at a risk-free interest rate, and the additional risk premium as a specific percentage of total construction costs.
If we designate the amount of investment in a project in t-th period through Et, then the totality of the costs of entrepreneurial efforts or, in other words, the entrepreneur's profit can be represented as follows:
In general, the use of the method assumes the following sequence of actions:
- calculation of the replacement cost of existing or projected improvements in the area being assessed;
- assessment of their market value (replacement cost minus cumulative depreciation);
- calculation of the total net income from the property;
- calculation of the share of total net income attributable to buildings, as the product of their market value by the capitalization ratio of income from improvements;
- calculation of the share of the total net income attributable to the land plot, as the difference between the total net income and the share attributable to buildings;
- calculating the value of a land plot by dividing the share of the total net income attributable to the land plot by the capitalization ratio of income from land.
Assessment of total net operating income is carried out by drawing up an income statement for the lease of buildings and premises. The main articles of the income statement are:
- potential gross income;
- actual gross income;
- operating costs, consisting of operating costs, replacement costs and management costs;
- net operating income (net operating income). Net operating income is the difference between actual gross income and operating expenses. However, only those operating expenses incurred by the lessor are deducted from the actual gross income.
Potential gross income is the income that can be obtained from renting out real estate when it is 100% filled by tenants and there are no losses from non-payments for rent. When assessing the market value of a land plot, rental rates for its improvements (premises in a building / structure) must be calculated solely on the basis of market rental rates. For premises that are vacant and used by the lessor for their own needs, as well as premises that are rented out for personal reasons at lower rental rates, market rental rates should also be used. Potential income should also include other income derived from the operation of inseparable real estate improvements, but not included in the rent.
Actual gross income is equal to the difference between potential gross income and losses from downtime and losses from non-rent payments. Downtime losses are calculated as a percentage of potential income, and losses from non-payments are often calculated as a percentage of the difference between potential income and losses from downtime.
There are two types of operating (maintenance) costs: constant, regardless of the level of occupancy of the object; and occupancy-dependent variables. Operating costs are determined based on market rental conditions.
Replacement costs are calculated based on the total replacement cost of improvement elements of land (buildings) with a short economic life, excluding depreciation. The calculation is made by direct calculation: by dividing the total cost of replacing the elements of improvements by the period of their economic life. In the process of performing these calculations, it is advisable to take into account the possibility of a percentage increase in bank accounts of funds required to replace elements with a short service life. At the same time, it is necessary to take into account the possible inflationary rise in the cost of such a replacement.
Administrative expenses are included in operating expenses regardless of whether the property is managed by the owner or the contract manager. The amount of management costs is determined either in monetary terms or as a percentage of actual gross income, depending on the type of property.
When calculating net operating income, no deduction should be made from actual gross income depreciation deductions on real estate and the cost of servicing debt obligations on real estate, if any.
Example 17.6. The replacement cost of the forecasted improvements - 537 895 den. units Net operating income from the property is 98,679 den. units Discount rate -16.83%. Reimbursement fund factor -0.086%. Determine the market value of the land plot using the land balance method.
Solution
Example 17.7. The subject of assessment is a land plot owned by Delta LLC. The assessment is necessary to determine the size of the contribution to the authorized capital when transferring ownership of a land plot to a newly formed business entity. Determine the market value of the land plot using the land balance method.
The state of the land lease market as of the valuation date: the main lessor of land plots is the municipality, represented by the Committee for Land Resources; the rental rate is set administratively based on the base rate and correction factors to it, differentiated by location.
The state of the market for non-residential buildings at the date of assessment: the market for the sale and purchase of non-residential buildings is passive, transactions are insignificant, information on prices is closed.
State of the rental market for non-residential buildings at the valuation date: the market for rental of non-residential premises is active due to the fact that the main users of non-residential buildings cannot acquire ownership of them due to limited financial resources, and the rental of buildings does not require large one-time costs.
Solution
1. Assessment of an object is carried out in the following conditions:
- absence of a market level of rent for similar land plots;
- the passive state of the market for the purchase and sale of non-residential buildings;
- the presence of a rental market for non-residential buildings similar to a building on the assessed land plot, the ownership of which is being assessed.
2. For the valuation of the land plot, the land balance method is used. To implement this method, you must define:
a) the amount of net operating income (NPR) from improvements
land plot;
b) the value of the cost of improvements to the land plot;
c) the value of the capitalization ratio for improvements;
d) the amount of net operating income related to the land plot;
e) the value of the capitalization ratio for the income generated by the land plot (or the discount rate for the income generated by the land);
g) the total cost of the land plot. Let's consider these stages in sequence.
Determination of the amount of net operating income NPH
1 The basis is the technical passport of the BTI.
2 When determining the rental rate, an analysis was made of the market level of rental rates for real estate objects similar to the one being assessed.
3 Typical operating expenses in this segment of the real estate market range from 10% to 30% of actual gross income and include land rent, property tax, land tax and other notional fixed costs.
Determining the cost of improvements
The cost of improvements is defined by the cost approach as the replacement cost (or replacement cost) less accumulated depreciation. The replacement cost (or replacement cost) is defined as the sum of the cost of new construction and the entrepreneur's profit. Not identified at the date of assessment Negative influence factors external to the object. Therefore, the value of external obsolescence is assumed to be zero. The calculations were performed in accordance with the methodology of the cost approach, and the cost of the improvements was estimated at 35,001,929 rubles. or 1 228 138 dollars.
Determining the capitalization ratio for improvements
For the purpose of assessing land improvements, the value of the capitalization ratio was determined by the market extraction method. This method is based on the study of the relationship between the market price of similar properties and the amount of net operating income from similar properties. The application of this method is due to the availability of sufficient reliable information on the market segment.
The formula for determining the value of the capitalization ratio by the market extraction method is as follows
where N01 is the net operating income from the property;
V is the market value of the property.
As of the date of the appraisal, offers for the sale and lease of the following real estate objects similar to the appraised object were identified.
| Item No. Object | Offer price, USD | Projected CHOD USD / year 2 | Capitalization ratio |
| 0,21 | |||
| 0,20 | |||
| 0,24 | |||
| 0,19 | |||
| 500 000 | 105 000 | 0,21 | |
| 250 000 | 50 900 | 0,20 | |
| 270 750 | 49 000 | 0,18 | |
| 6 126 400 | 1 097 400 | 0,18 | |
| 250 000 | 79 850 | 0,32 |
1 In fact, this formula is valid for assessing the capitalization ratio of a property as a whole. However, due to the high share of the cost of improvements in the total value of the property, it can be assumed that the capitalization ratio of improvements is close in value to the capitalization ratio of the property as a whole.
As can be seen from the above data, the capitalization ratio ranges from 0.18 to 0.32. In this regard, we carried out mathematical processing of the initial information by calculating the standard deviation. The value of the standard deviation is an indicator of the accuracy of the result obtained by averaging a number of values of the capitalization ratios. In accordance with the law of normal distribution, the normal distribution describes C ± 1.94a values of a number of numbers. This interval is used to filter out invalid data.
The formula for calculating the standard deviation is as follows:
С = (0.21 + 0.20 + 0.24 + 0.19 + 0.21 + 0.20 + 0.18 + 0.18 + 0.32): 9 ≈ 0.215.
Hence it follows that the confidence interval for the values of the series is 0.215 ± 1.94 x a. Since for our sample a = 0.043, the confidence interval for the values of the series is from 0.13 to 0.30.
Thus, the value of the series 0.32 may not be used in further calculations, since it does not reflect the typical level of the capitalization ratio prevailing at the time of assessment.
The value of the value of the capitalization ratio, determined by the market extraction method, is taken equal to the arithmetic mean value:
C = (0.21 + 0.20 + 0.24 + 0.19 + 0.21 + 0.20 + 0.18 + 0.18): 9 ≈ 0.202.
Determination of the capitalization ratio for income generated by a land plot
The capitalization ratio for land is determined by the cumulative construction method. The risk-free rate is determined by the rate of return on bank deposits the highest category reliability and is 8% per annum in foreign currency. The typical premium for the risk of capital investment to acquire ownership of land plots is 8% per annum. This value was determined by interviewing potential buyers, as a result of which it was found that the proper compensation for the risk of investing in the purchase of a land plot is a two-fold excess of profitability over the risk-free one. Thus, the capitalization ratio for land is 16% per annum.
Taking into account the rounding off, the market value of the ownership of the land plot is 3,000,000 (three million) dollars.
The example considered above should be considered as a training one, since the building in it had a fairly large amount of wear and tear. In fact, this circumstance to some extent contradicts the philosophy of the remainder method.
The value of land, by definition, does not depend on how it is developed at the time of valuation. The value of land is determined by its profitable potential - location, and manifests itself through the most efficient use of land.
The essence of the residual method for land is that the market value of land is determined on the basis of the income that remains after satisfying the needs for receiving income from improvements. The improvements must be consistent with the most efficient use of the land.
Improvements may correspond to the most efficient use of the land, but have varying degrees wear and tear. The higher the depreciation of an object, the lower its potential profitability. It can be shown that it is not entirely correct to value land using the residual method if it contains a building with a large cumulative impairment.
Thus, the remainder method is best used when the building corresponds to the most efficient use of land and has depreciation, as a rule, not exceeding 10-15%, since such depreciation practically does not affect the change in the profitability of the property being valued.
The remainder technique uses a position from classical theory economy of the land that the income attributed to the land is the remainder of the total income brought by the production facility, after all components have been subtracted from this total income to satisfy the remaining factors of production: labor, capital, management. Thus, the income attributable to land resources is residual and corresponds to the so-called land rent, provided that all production resources are economically balanced.
Remnant technique for land valuation allows you to determine the value of various interests combined in profitable real estate in physical, financial and legal. The use of the residual technique to assess all constituents other than land is rather formal, but it has been successfully used in economic analysis profitable real estate. The initial values are total net annual income, rates of return (for example, for land and for improvement) and the value of one of the components (physical or financial).
First, the income required to attract investment in the component with known cost, by multiplying the corresponding capitalization rate by the value. Then the income attributable to the second component is determined by subtracting the income attributable to the first component from the total income. Further, the income for the second component is capitalized in its value.
The most common application of the residual technique is in the analysis of the most efficient use of land and in land valuation in cases where there is no information on the sale of vacant land plots.
Calculations by this method are performed in several stages:
1. NPR (net operating income) is distributed between land, buildings and structures. To determine the income attributable to buildings and structures, it is necessary to multiply the cost of buildings and structures by the capitalization ratio for buildings and structures.
NOI in = V in R in, (1)
where V in(Value - English) - the current value of buildings and structures;
NOI in(Net operating income) - net operating income attributable to buildings and structures;
R in- capitalization ratio for buildings and structures.
The capitalization ratio for buildings and structures can be calculated using the formula:
Rv = R possible + R L, (2)
where R possible- coefficient of return (reimbursement) of capital;
R L Is the capitalization ratio for land. Capitalization in this case is carried out at the rate of return on investment without taking into account capital recovery, since the land is considered not to wear out.
2. The balance of net operating income attributable to land is determined. To do this, income attributable to buildings and structures is deducted from total net operating income.
NOI L = NOI - NOI in, (3)
where NOI L- net operating income attributable to land;
NOI- total net operating income;
NOI in- net operating income attributable to buildings and structures.
3. The residual value of the land is calculated by capitalizing the residual net operating income from the land.
where V L- residual value of land;
NOI L- residual net operating income from land;
R L is the capitalization ratio for land.
Example 1
Determine the market value of the land plot with the following initial data.
The cost or design costs for the construction of the building are 500 thousand rubles.
Annual net income from the object is 72 thousand rubles.
The rate of return on investment is 10%.
The economic life of the structure is 50 years.
Table 13
Note: 2% return on investment after 50 years is determined from the ratio 100%: 50.
Example 2
Determine the market value of the land plot where the investor plans to place a petrol station (gas station) with three columns.
Specific capital investments per column are determined at 48,780 rubles.
Analysis of the operation of existing filling stations in conditions similar in location made it possible to establish the following:
On average, 4 cars are refueled on one pump within an hour;
One refueling is on average 20 liters;
Net income from one liter of gasoline is about 0.026 rubles.
The planned profitability of the property is 12%. The economic life is set at 6 years. The investment is recovered on a straight-line basis.
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Consideration of the main methods of real estate appraisal from the perspective of the income approach - the method of capitalization of profits and the method of discounting cash flows. Forecasting the amount of income and expenses during the operation of the facility during the forecast period.
term paper, added 06/09/2011
The concept and structure of the land market, its characteristics. The procedure and main criteria for assessing land plots, the main stages of this process. Analysis of the municipal land market in Chisinau. The procedure for generating a report on the assessment of a land plot.
thesis, added 11/07/2010
The method is used to assess built-up and undeveloped land plots.
Method application condition- the possibility of building up the assessed land plot with income-generating improvements.
The method assumes the following sequence of actions:
3. Calculation of net operating income attributable to improvements for a certain period of time as the product of the cost of reproduction or replacement of improvements by the corresponding capitalization ratio of income from improvements;
4.calculation of the amount of land rent as the difference between the net operating income from a single property for a certain period of time and the net operating income attributable to improvements for the corresponding period of time;
5. Calculation of the market value of a land plot by capitalizing land rent.
The method also allows the following sequence of actions:
1.calculation of the cost of reproduction or replacement of improvements corresponding to the most efficient use of the estimated land plot;
2. Calculation of net operating income from a single property for a certain period of time based on market rental rates;
3. Calculation of the market value of a single real estate object by capitalizing net operating income for a certain period of time;
4. Calculation of the market value of a land plot by subtracting the cost of reproduction or replacement of improvements from the market value of a single property.
The use of the residual technique for land assumes that the value of the building (structure) can be determined fairly accurately. The technique can be useful if there is no reliable data on the sale of vacant land plots.
Example 1. Assessment object: land plot owned by Interplast LLC.
1. Characteristics of the land plot and related improvements:
| Land information |
|
| 1 . total area | 3,000 m 2 |
| 2. Purpose | Operation of an existing administrative building |
| 3. The relief of the site | Smooth |
| 4. Land improvements | Five-story capital building |
| Information on improvements |
|
| 1. Transport accessibility, distance from the city center | Good, located in the city center |
| 2. Total area | 2 400 m 2 |
| 3. Improvement structure | First floor with an area of 490.2 m2 Second floor with an area of 420.2 m2 Third floor with an area of 480.7 m2 Fourth floor with an area of 420.1 m2 Fifth floor with an area of 580.6 m2 |
| 4. Purpose | Administrative |
| 5. Building material | Brick |
| 6. Sanitary, electrical devices: | heating, plumbing, sewerage, hot water supply, electricity gas stoves |
| 7. The physical state | Excellent - the premises and finishing are in excellent condition, after renovation, finishing made with imported materials. The object is focused on a wealthy client |
| 8. Property rights | Full ownership |
| 9. Date of receipt of information | October 2001 |
Description of the method
The land balance method is used to value the land parcel. To evaluate by this method, it is necessary to determine:
a) the amount of total net operating income (NPR);
b) the value of the cost of improvements to the land plot;
c) the value of the capitalization ratio for improvements;
d) determination of the amount of net operating income related to improvements.
e) the amount of net operating income related to the land plot;
f) the value of the capitalization ratio for income generated by ownership of land;
g) the total cost of the land plot.
Let's consider these stages in detail.
A) Determination of the amount of net operating income
As a result of the analysis of the lease of non-residential premises, the average rental rate was $ 420 per 1 m 2 per year.
B) Determination of the value of the cost of reproduction of improvements.
The cost of improvements is determined in 2 stages.
At the first stage the amount of costs for creating improvements (construction cost) is determined.
On the second - the amount of accumulated wear.
B.1. Determination of the construction cost.
The most common method for determining the cost of construction is the unit cost method, implemented through the Collections of aggregated replacement cost indicators (UPVS).
Determination of the construction cost for UPVS is carried out in the following order:
1) According to the UPVS collection data, an analogue object is selected, i.e. the building most similar in its basic characteristics to the object. In this case, the main characteristics include:
2) Determination of the replacement cost of a specific unit of an analogue object at the basic price level of 69-72 (C69 ta) directly according to the UPVS table.
3) Correction of the replacement cost of a specific unit when the analogue object differs from the valuation object.
C 69 = C tab. 69 x P k1;
where K1 - correction factors for the following factors:
Location of the object of expertise (territorial zone and climatic region);
Differences in the types of main supporting structures;
Divergence technical characteristics other elements of the building (construction volume, number of storeys, etc.).
4) Determination of the full replacement cost of the property in 1969 prices.
PVA 69 = C 69 x V ,
where V is the estimated volume of the building (or total area);
С 69 - the cost of a unit of volume (or area) in the basic price level, taking into account the amendments.
5) Determination of the full replacement cost of the building at the date of valuation.
PVS current = PVS 69 x I 69/84 x I 84 / tech. x (1 + C vat) x H pr
where PVS current - full replacement cost as of the date of assessment;
PVS 69 - full replacement cost of the property being appraised in 1969 prices;
I 84 / tech - the index of the transition from the estimated prices of 1984 to the estimated prices at the date of valuation;
VAT included - value added tax rate (if VAT is not included in I 84 / tech)
H pr - coefficient corresponding to the expected rate of return of an entrepreneur conducting a construction business.
Calculation of the replacement cost of land improvements
| P / p No. | Analysis elements | Land improvements |
|
| 1 | 2 | ||
| 1 | Characteristic structural elements building | foundation: rubble concrete walls: brick floors: reinforced concrete roof: galvanized iron floors: plank, tile, roll materials, mosaic openings: double casement, paneled internal finishing: plaster and oil painting, mosaic, etc. |
|
| 2 | Justification | UPVS No. 34, tab. 2 |
|
| 3 | The value of the cost of 1 m 3 of an analogue object (rub.) | ||
| 4 | Correction of PVS when the analogue object differs from the examination object (rub.) |
||
| 4.1 | for construction volume | 0 | |
| 4.2 | by number of storeys | 0 | |
| 5 | PVS value adjusted for (RUB) (3 + 4.1 + 4.2) | 35,6 | |
| 6 | Building volume (m 3) | 73 457 | |
| 7 | Price appreciation index I 69/84 | 1,2 | |
| 8 | Price appreciation index I 84 / tech | 13,348 | |
| 9 | VAT factor | 1,18 (0,18) | |
| 10 | Investor's rate of return | 1,2 | |
| 11 | PVS current (rub.) (5х6х7х8х9х10) | 60 317 471 | |
B.2. Determination of the amount of accumulated wear.
It is produced in several stages, which include:
1) determination of the amount of removable physical wear and tear;
2) determination of the amount of irreparable physical wear and tear;
3) determination of removable functional wear;
4) determination of unrecoverable functional wear;
5) determination of the amount of external wear.
1) Determination of the amount of removable physical wear and tear
Removable physical wear and tear include those shortcomings of building structures, building elements that appear due to poor operation, therefore it is also called deferred repair.
The amount of removable physical wear is equal to the cost of restoring a building element to a state of normal operation.
Therefore, the removable depreciation of immovable assets is assessed using the "Rules for the assessment of physical depreciation ..." VSN 53-86 (R) Gosgrazhdanstroy (Officially published). According to clause 1.2 “ General provisions»VSN 53-86 (R):" Depreciation at the time of its assessment is expressed by the ratio of the cost of objectively necessary repair measures that eliminate damage to a structure, element, system or building as a whole, and their replacement cost. "
According to these rules, the depreciation of a building is equal to the sum of the depreciation of individual building structures multiplied by their share in the total replacement cost of the building.
Calculation of removable wear and tear of land improvements
| Design name | The specific gravity of the structure in the total replacement cost | Signs of wear | Approximate scope of work to eliminate | Removable physical wear,% | Determination of removable physical wear, $ |
| 1 . Foundation | 0,05 | curvature horizontal lines basement without signs of sedimentary deformation | Grouting cracks. Elimination of damage to the finishing layer of the base | 30 | 60 317 471 x 0.3 x 0.05 = 904762 |
| 2. Walls and partitions | 0,15 | individual cracks and plaster falling off | repair of plaster, sealing cracks | 15 | 60 317 471 x 0.15 x 0.15 = 1357143 |
| 3. Overlaps | 0,14 | individual cracks in the tension zone | restoration by injection of cement mortar into cracks, application of cement plaster | 25 | 60 317 471 x 0.25 x 0.14 = 2 111 111 |
| 4. Roof | 0,05 | individual leaks, loosening of the fastening of individual sheets | placement of patches and sealing in places of damage | 15 | 60 317 471 x 0.15 x 0.05 = 452 381 |
| 5. Floors | 0,06 | minor damage and slight shrinkage abrasion in running places | scraping of individual areas, replacement of damaged blades | 10 | 60 317 471 x0.1 x0.06 = 361904 |
| 6. Openings | 0,05 | window sashes are cracked, small cracks in the corners are loosened, cracks in the vestibules, the putty has fallen behind in places | repair of bindings, strengthening of connections | 30 | 60 317 471 x0.3x0.05 = 904762 |
| 7. Ladders | 0,02 | rare cracks on the steps, isolated damage to the handrail | grouting cracks, repairing handrails | 20 | 60 317 471 x0.2x0.02 = 241270 |
| 8. Finishing work | 0,05 | local single damage, hairline cracks | grouting cracks, painting | 10 | 60 317 471 x0.1 x0.05 = 301587 |
| 9. Sanitary devices | 0,09 | weakening of the points of connection of devices | sealing joints, repairing pipes in places | 15 | 60 317 471 x0.15x0.09 = 814286 |
| 10. Air conditioning | 0,03 | clogged air ducts | cleaning and repair of air ducts | 25 | 452381 |
| 11.Electric lighting | 0,06 | not identified | - | 0 | 0 |
| 12. Electrical devices | 0,09 | loosening the fastening of individual devices | fixing devices | 10 | 542 857 |
| 13. Mechanical devices of the stage | 0,08 | not identified | - | 0 | 0 |
| 14. Sound technical low-current devices | 0,03 | not identified | - | 0 | 0 |
| 15. Film projection devices | 0,01 | not identified | - | 0 | 0 |
| 16. Other works | 0,04 | not identified | - | 0 | 0 |
| Total removable wear (RUB) | 8 444 444 | ||||
2) Determination of the amount of irreparable physical wear and tear
Unrecoverable physical wear and tear corresponds to positions, the correction of which is currently practically impossible or economically impractical. The amount of this type of depreciation is determined on the basis of the difference between the full replacement or replacement cost and the amount of removable physical depreciation.
Fatal wear and tear is divided into:
Irreparable physical wear and tear of short-lived elements. Short-lived elements have less residual economic life than the entire structure.
To assess the incorrigible physical wear in short-lived elements, the difference between the total replacement cost of the element and the sum of the correctable wear of the element is multiplied by the ratio of the actual age to the total standard life of the element. In this case, the overall standard life of an element is determined by reference data, taking into account periodic repairs and maintaining normal operational characteristics.
Fatal wear and tear of long-lived elements. Long-lived elements - those elements, the residual life of which coincides with the residual economic life the entire structure. After determining the values of the correctable physical wear and the sum of the replacement cost of short-lived elements with irreparable physical wear and tear, it is necessary to subtract these values from the full replacement cost to determine the basis for calculating the irreparable physical wear in long-lived elements. The cost of incorrigible physical wear and tear in long-lived elements is calculated as the ratio of the actual age of the building to its total physical life multiplied by the residual replacement cost of long-lived elements (previously determined baseline)
